Financial Regulations Hobble U.S. Companies in Myanmar Even after U.S. Sanctions Lifted

Secretary-General Ban Ki-moon of the United Nations meeting with Aung San Suu Kyi, State Counsellor and Minister for Foreign Affairs of Myanmar. President Donald Trump could host Aung San Suu Kyi when she travels to the United States for the United Nations General Assembly meetings in September 2017. Source: United Nations Photo’s flickr photostream, used under a creative commons license.

Last September 14, while Myanmar’s de facto leader Aung San Suu Kyi was visiting Washington, President Barack Obama announced with considerable hoopla that the United States was lifting its remaining sanctions on Myanmar. Today, nearly nine months later, American companies trying to operate in Myanmar are still hobbled by sections 311 and 312 of the USA Patriot Act, which deal with money laundering and terrorist financing and impose stringent due diligence requirements.

These regulations mean that “no U.S. banking institution will provide trade financing in Myanmar, finance direct investment in the country, or help U.S. investors repatriate their profits,” says Eric Rose, the lead director for Herzfeld Rubin Meyer & Rose Law Firm, whose lawyers have provided legal services in Myanmar for three decades. The same applies to foreign banks that have operations in the United States.

Any major purchases by Myanmar such as Boeing airplanes or GE jet engines need to be booked through Singapore or other regional banks. Forcing Myanmar’s international banking transactions to take place offshore adds costs to transactions in a country where operating costs are already high.

Last October, the U.S. Treasury Department temporarily exempted Myanmar from section 311, but the country is still kept on a short list of countries that are subject to enhanced due diligence enforcement of section 312. The only other countries on the list are Cuba, Iran, and North Korea.

These two sections impose rigorous due diligence requirements and are intended primarily to apply to countries that do not participate in international counter-money-laundering information sharing arrangements or allow bank account holders to bar financial institutions from cooperating with international attempts to obtain bank account information as part of an official investigation.

These regulations continue to apply to banks operating in Myanmar even though formal sanctions against the country have been lifted and it was removed from the lists of the Financial Action Task Force, an intergovernment body that seeks to combat money laundering and terrorist financing, in February 2016. That step was taken three months after the country had surprising free elections that put opposition leader Aung San Suu Kyi’s National League for Democracy in power.

The Treasury Department has provided technical advisers and is working with Myanmar’s central bank and intelligence authorities to help them detect and block laundered drug money from entering the banking system. “We’re making progress, but there are a few remaining issues,” a Treasury official said.

One immediate concern seems to be the country’s so-called “hundi” system, an informal money exchange first developed in India in which an agent can be paid in one country or place and another agent in a distant location can pay a third party to move money around in places like Myanmar where banking systems are weak. Because it allows transactions where modern banks are not active, the hundi system raises concerns that it can be used to move money, including for money laundering purposes.

Since Washington began easing sanctions against Myanmar in 2011, about 60 U.S. companies have set up offices in Myanmar, but few besides Coca-Cola have invested significant amounts. A recent survey conducted by the fledgling American Chamber of Commerce in Yangon found that most U.S. companies were reluctant to invest in Myanmar because U.S. banks refused to conduct financial transactions with local banks thanks to the remaining restrictions. Total U.S. investment in Myanmar is still less than $500 million, ranking the United States 14th among Myanmar’s global investors.

Aung San Suu Kyi and her government were hoping that U.S. investors would come to tap into the country’s 51-million-person market, its vast largely unexploited mineral wealth, relatively cheap labor, and large swaths of fertile agricultural land when the sanctions were removed. But they have been disappointed at how little U.S. investment and trade has come in the intervening months.

For U.S. companies, financial restrictions are a factor for their wait-and-see attitude but only one of a litany of concerns. Many companies have been waiting for clarification and implementation of the government’s economic reforms and investment policies. The country is still so “immature,” said an official of a U.S. engineering and construction firm involved in oil and gas projects in different tough places around the world that came to explore operating in Myanmar.

Roads in many places are “nonexistent” and the regulation situation is “difficult,” the business executive said. “The banking problems are only one of many factors” that prompted the company not to jump into the market. But regulations like sections 311 and 312 “make U.S. companies much less competitive” in the Myanmar market, he said.

The restrictions of the Patriot Act have a chilling effect on U.S. exports to a country that is friendly to the United States and whose consumers love American products. To lift the restrictions would require President Donald Trump to notify Congress that the Treasury Department was permanently ending implementation of these regulations against Myanmar, which would allow it to be treated on a level playing field with its neighbors in Southeast Asia.

There is talk in the administration about inviting Aung San Suu Kyi to Washington for a meeting with Trump when she attends the United Nations General Assembly in September. That would provide a good opportunity for the administration to remove Myanmar from the short list of countries still living under sections 311 and 312 and allow U.S. companies to participate more fully in Myanmar’s economic development.